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Medicaid Gifting and the Look-Back Explained
Medicaid is a program that provides vitally needed medical assistance for people 65 or older and for blind or disabled individuals. It is a “needs based” program which in simple terms means the applicant must have minimum resources and limited income as well as medical need. These limitations notwithstanding, millions of middle-class Americans can and do qualify for Medicaid.
In evaluating an applicant’s assets Medicaid examines all gifts and transfers made by the individual within 36 months of the date of the application (the look-back is 60 months for gifts to trusts). In other words, Medicaid “looks back 36 months” to examine the applicant’s financial transactions. Financial transactions made more than 36 months before the application are not subject to the look-back. Medicaid is looking to see if the applicant received “fair market value” for all transfers or whether the transfers were really “gifts.” Transfers for which the applicant did not receive fair market value and gifts are subject to penalties imposed by Medicaid.
The penalty is a period of time during which the applicant will be disqualified from receiving Medicaid. During this period of disqualification the applicant will need sufficient funds to cover his or her living expenses. For example, if Mr. Smith made a gift to his daughter which resulted in a two-month period of disqualification he would have to be financially capable of covering his expenses for the two month period.
That the gift was made during the look-back period and the resulting penalty are what matter. The fact that the gift was made, however, does not mean the applicant is disqualified from receiving Medicaid for the entire 36 months. 36 months is a time period of evaluation not disqualification. The applicant is only disqualified for the penalty period relating to the gift(s) in question.
For example, if Mr. Smith applied for Medicaid on January 1, 2003, Medicaid would ask if he made any gifts or transfers within the prior 36 months thereby looking back to January 2000 (nothing before January 2000 will be evaluated except a transfer to a trust). Let us assume that in March 2001, Mr. Smith made a gift to his daughter that resulted in a 10-month penalty. The penalty would begin in the month the gift was made (March 2001) and extend until and through December 2001. As of January 2002 Mr. Smith’s penalty expires and upon his application for Medicaid in January 2003, assuming he otherwise qualifies, he will be eligible for to participate in the program.
Although an application for Medicaid is generally made after an individual enters a nursing home or other long-term care facility, gifting can take place at any time. Frequently, an elder will begin a gifting program months, and in some cases years, before entering a facility. Generally, the financial need when a person is still at home is far less than after entering a facility. The result is that the sooner an individual begins a gifting program the more he or she can save.
Every gift, whether money, goods or real estate, incurs a penalty for Medicaid purposes. Penalties are measured, as previously indicated, not in dollars but in periods of time. The penalty period is the length of time during which the individual making the gift is ineligible to receive Medicaid benefits. The penalty is imposed because if the individual had not made the gift the funds represented by the value of the gift would have been available to pay for a certain period of time in a nursing home (whether the person is at home or in a long-term care facility at the time the gift is made is not important).
It may seem that gifting and the look-back pose little problem but that is far from the truth. First, it’s a violation of law to file an application for Medicaid during any penalty period. Second, an error in calculations regarding the relationship of the penalty to the look-back can cost the individual thousands of dollars. And lastly, mistakes in either the design or implementation of an asset protection plan can result in significant civil penalties and even criminal sanctions.
Gifting is an appropriate strategy to be used by many individuals in Medicaid/Asset Protection Planning. If, however, an individual is considering designing and implementing a plan he or she should consult a qualified Elder Law Attorney.